Category Archives: Day Trading Tips

Before you actually build your plan there are things you will want to learn. It is really important to differentiate between system traders and discretionary traders. The former will commonly use a certain level of automation in their trading plans and set objectives of trading. The latter, however, will watch the market and trade manually in real time. They will respond to information that is available at the time.

An average trader will start as a discretionary trader. After all, that is what most imagine when they think of trading. They will use their intuition combined with the information they have to make decisions.

On the other hand, we have a system trader. A system trader will follow the logic of the system as closely as possible. The rules are absolute and it is natural to even set up an automation of trades. The trader will set up a strategy and the computer will handle the activities. You can use tools like Trade Ideas to find ideal trading strategies and automate your search for stocks.

So, before you make your trading plan, you will have to decide on which type of a trader you will be.

Now that you are creating a plan, this is what it will need to include:

1. What Markets Will You Use?

There is no reason to limit yourself to stocks. There is quite a selection you can use. You can trade commodities, ETFs, bonds, futures etc. Of course, you will want an instrument that trades under good liquidity. If there is not enough trading you will not have your opportunity to profit.

2. The Main Chart Interval

Even if you choose to be a discretionary trader, you will want to make decisions with a chart. You can base your chart on activity or volume. There is no superior choice here. If you plan to be a long-term trader you would do well with a longer interval period. Alternatively, if you opt for short-term trades, your intervals should have smaller periods.

3. Indicators and Settings

In order to make it in the trading world, you will probably have to use technical indicators. They are mathematical functions that are evaluating your trading instrument’s price and activity. The indicator alone cannot tell you what to buy. It simply provides you with signals regarding trading points you can use. The interpretation of them is still up to you. You can use indicators that work around momentum, volume, volatility, and trend.

Other than the indicators you should also define the settings in your plan. Try to specify them in your plan. For an example, if you are going to use a moving average, specify exactly how it should be done. Any instructions or time periods should be exact.

4. Position Sizing Rules

Position sizing is the dollar value of the investment. It is essentially the amount an investor is going to trade. It can also be used to track how many shares or contracts you wish to buy or sell. A new trader will commonly start with an e-mini contract. This way, they can test their system.

5. Entry Rules

You should come up with a set of entry rules to avoid impulse buying or selling or over analyzing the situation. The entry rules in your plan serve to make sure you follow the plan. Otherwise, if you are too conservative, you will miss out on opportunities. Alternatively, if you are too adventurous you stand to lose money. With the entry rules in your plan, you can take your own flaws out of the equation.

6. Exit Rules

Exiting a trade is the harder part of making a profit. If you make a right decision you can profit from almost any trade you go in. Do your research and testing and make sure your exit rules are good. Try to define various trade outcomes. Set up your profit targets, stop levels and strategies.

With the recent developments in technology, individuals can now trade and invest from their own homes in their PJs. In most cases, the individuals doing this will either be swing or day traders. However, although the ones doing this are probably making a lot money, there are many that will go in and failure immediately, losing everything. There is no question about it, the day trade lifestyle is stressful and hard and is not what people initially expect. A lot of people want to become a day trader, even individuals already in the stock market industry because it seems so appealing. There are even trading services that teach you how to trade, as explained in this Investors Underground review.

You get to sit at home, be your own boss, trade whenever you like and you have the opportunity to make a lot of money. You also have the opportunity to lose a lot of money, however. Many of you will be wanting to get into the game but are not sure what to expect or what you need. This article will go over some of the things you need to become a day trader.

Save Up a Lot of Money

The first thing you are going to need if you’re thinking about day trading is money. There is no question about it, you’re going to need to have a sufficient amount of capital in order to give yourself a cushion if you make a mistake straight off the bat. In most cases, some professional day traders will lose a lot of money in one day but will be able to make it back the next. Have a lump sum of money underneath you can be a great way to test the field and develop a strategy.

Have a Strategy

As I ended on the idea of strategies with the last point, let’s develop it further. If you want to be a day trader you need to have a strategy before you enter the market. All the professionals already have their methods and are following a strict plan with rules. If you go into the market unprepared you’re asking to lose money.

There are a lot of different strategies you can take. However, you need to make sure you can cover the commissions for your trades. This means that with the money you have you should be investing in good sized stocks with price movements. You also need to know your entry and exit points. These are very important.

Technical Skills

If you want to be a master day trader you have to have a number of skills. If you don’t have these skills then you may not be cut out to be a day trader. One such skill is mathematical ability. You need to be able to understand charts and numbers if you want a chance at understanding the stock market and its movements. If you don’t know how to read a candlestick chart you’re be doomed from the start. Charts and numbers are the fundamentals of the stock market and you need know the right knowledge if you are to succeed.

Conclusion

Day trading is a great skills to have and you could make a hell of a lot of money if you master it. The fact of the matter still stands though, you may not have the skills, capital or knowledge to even begin trading. It is recommended you have $100,000 before you quit your job to become a trader because you need that financial cushion in case you lose some money. Evaluate your skills and map out your traits. This will help you decide whether day trading is for you.

In the 16th century, japan didn’t have pre-defined currency for trading. People used to exchange commodities. Every person working was to give rice as a tax in Japan. At the port, Feudal Lords set up a store for the storage of rice collected. Rice receipt was used as a medium of conducting the sale and buy transactions. Additional receipts were generated for being people to transact with, they would be paid from the other harvests in future. Those receipts were referred as “Empty Rice Contracts” since there was no physical ownership of rice. It was the beginning of one day trading in the world.

Japanese Rice Trading

In the late 17th century a rice trader in Japan known as Mr. Homma Munehisa conducted a very deep study of all aspects concerning the future of rice. The study involved the fundamental and entire market psychology for the rice. Following his study, he became a very successful rice trader in Osaka at Ojima Rice Market. It was reported that Mr. Homma Munehisa had won more than 100 consecutive trades in a row. He became a legendary rice trader in Osaka. Many people referred him to “God’ when it came to rice market. For his contributions in the technical trading and trading capabilities, Mr. Homma Munehisa was honored as “Honorary Samurai’.

Candlesticks charts were found by Mr. Honorary Samurai. Candlesticks charts methodology was developed on the basis of the rice trading principles and techniques. In 1775 he wrote a book called “San-en Kinsen Hiroku“. In his book, he shared all the psychological aspect concerning the market.in his book he highlighted on how psychological mind of the traders plays an important role for them to be successful. He also mentioned that human emotions have a huge impact on the price movements for the rice in the market. His book became a great success to him.

Candlesticks in the Stock Market

In the late 19th century, candlestick trading method started to be used by many Japanese technical analysts. The method was used in the Japanese stock exchange. In the early of 19th century, Mr. Charles Dow a very famous market technician picked up the Japanese candlesticks. Candlestick is the most popular technique used to analysis charts for the trade financial instruments by all the traders. It is in use up to date.

Candlesticks Introduced to America

Recently, Mr. Steve Nison agreed on the power from the Japanese candlestick. He was the first person to introduce the candlestick technique in the western world. It was in the mid-1980s when he first came across the Japanese candlestick. He met the candlestick in one of the Japanese broker offices. He was fascinated by the candlestick and he could not hide it. He began to research about the candlestick with great passion. His research took him three years to become a success writing his first book about the Japanese candlesticks. He became the first person in U.S to publish an article about the Japanese candlesticks analysis. His book was published in the year 1989, “Bibles of Candlestick Charting Analysis, Japanese Candlestick Charting Techniques, and Beyond Candlesticks”.

Candlestick Charts for Day Trading

Day trading is a technique which is popularized to all the general investments for the last 7 years. It emerged as a result of a decline in the severe market daily. With huge down days, it was difficult for investors and their brokers to the communique. It was enacted that the market should be accessed by everybody available, thus leading to electronic trading systems.

The initial day trading techniques must have an electronic signal which produced huge profits and quick arbitrage although the in the last two years they have disappeared. When using the candlestick signal, day trading is very profitable. The current candlestick signal clearly shows investors sentiment all changes for a certain duration. A combination of stochastic and candlestick signal facilitates high accurate results. When the stochastic and signal coordinate, day trading is the best platform to work on.

Candlesticks charts are easy to learn. Prices range of the open and close are usually plotted in a line as a rectangle. In case the close of above the open, the rectangle body is white and if the close is below, the rectangle body is red. Many candlesticks combine and form a candlestick pattern. The red color is used to as a representation of blood of the buyers and sellers in Homma’s reference.

Day trading is transacting in a financial instrument single or multiple times within a day sometime u to five or six time as with the pattern day trader rule. It is a very risky involvement as the price of a tool is very volatile in the short term. If practiced with a degree of caution and temperance day trading can be very profitable and give you the big bucks. The secret is arming yourself with tons of information, a mindset willing to take the risk and a platform to do so. This part is especially risky for newbies if they don’t exercise restraint and stick to a plan. It is imperative to know when to enter the market and know when to take the money.

Trade entries are the determinants of success of a day trade. It is not an easy monkey see monkey do affair but a lot of thinking has to be put into coming up with a trading strategy. The best time to come up with a plan is after the close of business when the daily chart has more information than an M5, M15 or H4 chart. It is imperative to understand that a bad strategy will affect the ability of a trade to generate any meaningful profit.

The following tips should come in handy when you choose to day trade.

Choose the perfect moving average.

To Perform the pattern day trader rule, do the necessary homework. Knowledge is power, and no amount of knowledge is wrong unless it is for insider trading. It will give you the continuous feedback on short-term price action, and you can be able to make decisions much easier. Intra-day bars together with moving averages tell you when the right time is to enter or exit the market. It adds one more parameter to judge technically biased day trading policies.

Do enough research

At the back of your mind, you should know that you are going up against algorithms that millions were poured to develop and very experienced traders. It is of critical importance to be armed with not only the information about the company but also with information about the socio-political environment of the enterprise in question. Read journal, newsletters and watch the news and be in the know of any minute detail that might affect the price of the stock. Make your research extensive and make a list of those companies related or not that you want to perform a day trade in. The aim of a day trade is to capitalize on the smallest changes in the price of the stock, so every detail counts.

Make use of limit orders and other trade tools to maximize profit and reduce risk.

Limit orders in the pattern day trader rule are placed above or under the current market price to minimize loss. The decision of under or above is dependent on the position you take. In the long position, for instance, a limit order shall be placed below the prevailing market price and vice versa. If the price goes down below the market price your order is placed as long, the converse is also true. Features such as stop loss and risk allowance should help you stay within manageable limits of risk and losses. You should understand high risk is good but can also be of detriment to a trading strategy.

Practice using a demo simulator.

Most demo simulators provide real time information on markets, but you trade using virtual currency. You can put the pattern day trader rule strategy through the paces and analyze defects in it and fix it without using real cash. This will not only boost your confidence but will also give you the exposure to the volatility of the markets. You get to analyze the market by actively participating through a screen. It will also help you build discipline.

Have a plan and stick to it religiously.

The market has a very bitter way of keeping people in check. It is of utmost importance to pre-plan your trades. Write down a list of companies interest you. Be true to self about the levels of profits you expect and know that the market is not a zero-sum entity and that it is your plan that is key to unlock benefits.

Trade in only the best opportunities.

There is no rule anywhere that says you must trade on a particular day. Trade in what you’re sure about. When the market is unsettled and not favorable relax and focus on learning. Do not follow alerts by other people head on without knowing what they mean. Take the strategies of very reputable traders and use them if possible. After you getting enough exposure is when you can be bold enough and modify or introduce your techniques.

Stay level headed and avoid jerky judgment.

The fluctuations in a market can cause even an experienced trader to lose it. Stay grounded and stick to the plan. In this circles, it is important to plan your trades and sell your ideas. Do not withdraw or buy into the market because it’s what everyone else is doing. Having your own identity is also important.

Stick to your budget

Have a limit as to what amount you are going to trade, know how much your risk limit is and set a surplus for the margins. Do not put all your saving into the market with the hope of making a quick score.

Choose the right financial instrument

Avoid illiquid and penny stocks. Make deals in stocks that move large amounts of share as you’re sure when you want to withdraw someone will always buy your shares.

Day trading refers to the practice of buying and selling financial instruments such as stocks, bonds, currencies, futures, options, and commodities, during the day with the aim of making profit from the volatility on the market. Day traders may deal with thousands of shares in a single day, often with leverage, and seek small-percentage profits from their trades. A trader takes a specific position depending on their analysis of a stock’s probable price direction within the trading period.

In order to succeed in day trading, you are expected to be knowledgeable, disciplined, and patient to wait for the right trade.

There is a difference between day traders and investors in that day traders hold their securities for only one day. Day traders close out their positions at the end of the day and then start over again the next day. Conversely, swing traders hold their securities for a couple of days, sometimes it can be even months, while investors may hold their securities for several years.
Originally, day trading was done by financial companies only as they had access to the exchanges and market data. But with the swift advancement of technology, today individual traders can directly access to the same exchanges and market data, and can make the same trades at very low cost.

What are some of the benefits of day trading?

The major advantage of day trading is the potential to earn huge profits. There are many other benefits you can reap from day trading if you can effectively manage your emotions and cope with the inherent pressures.

Be your own boss

A day trader is simply self-employed, working by themselves and answerable to no one. Being professional day trader means you are a true entrepreneur living by your wits to reap the benefits of your own decisions.

Expensive education is not a requirement in day trading

Unlike jobs in the corporate market, day trading doesn’t require an expensive education. Basically, there are no formal educational requirements for becoming a day trader.
Another good thing about day trading is that you can do it from anywhere provided you have access to a computer and a reliable internet connection.

Day trading requirements

Knowledge

Knowledge and experience in the marketplace is essential for one to succeed in the stock market. The latest stock market news and events that affect stocks will help you reap huge profits. Attempting to day trade without an understanding of the market fundamentals is a ticket to losing your money.

Sufficient Capital

A substantial amount of capital is required to capitalize effectively on intra-day price movements.

Infrastructure

A modern day trader must rely on a combination of computers, routers, internet connection, and specialized software in order to keep track of the market all day round. Besides, an active day trader needs to use an electronic communication network to avoid paying a commission to a broker for each trade.

Discipline

A profitable strategy may not yield good results if you are not disciplined. Many traders end up losing their hard earned money because they fail to stick to their trading plan. Therefore, you need to develop a set of strict rules that take the emotion out of a trade.

Day trading is very prevalent especially in this digital era. Day trading, both institutional and individual, play a vital role in the marketplace by keeping the markets efficient and liquid. Day trading takes time to master. With proper techniques and guidelines, one can make huge profit from day trading.